December 19, 2001
Table of Contents
Quote of the Week
Staff Article - Year End
Tax Tip of the Week
Guest Article - The
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Since we are approaching the end of the year, the staff article in this
issue deals with year end tax planning. It's a subject that is easy to
overlook during the holidays, but one that can save you lots of money.
Our guest article this week is not really by a guest, but by our very own
Cary Christian. It is a short, change of pace article called "The Last
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Quote of the Week
Dream as if you'll live forever. Live as if you'll die today.
- James Dean
Year End Tax Planning
by: SBC Staff
Your tax deadline is approaching rapidly. You're concerned because you
believe you may owe tax but you're not sure just how big the bill might be.
You're thinking about filing an extension just to put it off for awhile, but
you know it will continue to bother you until you know just how much you
Does this sound familiar? Most small businesses do not pay enough attention
to their tax situation until it is too late to do anything about it. March
15, April 15 and any of the extended deadlines are simply too late. You must
think about your tax position before the year ends. Where should you start?
Begin by actually determining what your tax return would look like if you
filed it on December 15. Go through the process of preparing your return or
get your accountant to prepare an estimate for you. If you're comfortable
with the flow of a tax return and any specialized calculations that apply to
your business, you can do this on a spreadsheet rather than on the forms. If
you're not that comfortable or proficient with taxation, actually fill out
the forms to see where you stand.
This is a very tough first step for many of you, we know. But it is
absolutely critical that you do it! You cannot plan and manage your tax
liabilities unless you know what they are before year end. You do not want
to implement tax saving strategies if you don't need to. You'll be wasting
money instead of saving it.
Once you've determined where you stand you are ready to consider specific
techniques for either deferring or accelerating income or deductions.
Let's say you've determined you're going to be taxed at the highest rates on
your business income. It's been a good year! So you need to think about
deferring income and accelerating deductions. Here are a few techniques you
If you use inventory in your business, take stock of what you have. If you
have items that are damaged or are otherwise unsaleable at normal prices,
offer them for sale at a reduced price. If you do so, you be able to write
down the value to the reduced price whether you sell them or not.
If you are a cash basis taxpayer, consider paying expenses in December that
are otherwise due in January. Write out the checks and mail them at the end
of December. If you need the cash flow, pay them using a credit card where
possible. You'll still get the deduction in the current year but won't have
to pay the credit card until January.
If you are an accrual basis taxpayer, make sure you evaluate all your
expenses that are coming due in January and accrue amounts that relate to
December. For example, if you pay a cleaning service monthly on the 15th for
cleaning your offices, you should accrue 16 days of cleaning expense in
December out of the amount to be paid on January 15. Go through all of your
expenses to look for this type of accrual capability.
If you are a cash basis taxpayer and have a payroll due early in January,
consider paying it early to have it fall in December. Your employees will
like it and you'll get the deduction this year. If you are an accrual basis
taxpayer, make sure you accrue the payroll related to days worked in
If you are a cash basis taxpayer and have sold goods on terms, get your
customers to pay you just after the beginning of the year. If you are an
accrual basis taxpayer and have orders to process, check with your customers
to see if it would be acceptable to ship them on January 2 and move the
accrual of the sale to the next year.
If you don't have a retirement plan, investigate starting one right away.
Check with your investment advisor or CPA to see how much you could
contribute in the current year. Be aware that if you have employees, they
will have to participate in the plan as well in order for your contributions
to be deductible. This can become quite complex but is possibly one of the
best tax planning options available to you, not to mention a very sound
If you are planning to buy equipment in the near term, consider buying it in
December and taking advantage of the Section 179 deduction that allows you
to expense the acquisition within certain limitations.
Now let's assume that you find you will be taxed at the lowest tax rate or
that you have a loss and will pay no tax at all. Don't assume you are done!
If you are expecting a large taxable income next year, you will want to
consider accelerating income and deferring deductions. In other words, you
will want to do the opposite of the recommendations above.
Why would you want to create taxable income in a year when you will not owe
tax? To take advantage of the lower tax rates. If you can shift income from
next year that will be subject to a tax rate of 40 percent or more to this
year where it will be taxed at 15 percent, the savings of 25 percent or more
is real and permanent.
Be sure you evaluate your tax position over the next week or so and take
action where necessary. Proper planning can save you a great deal of money.
If you need help with any of the above techniques or would like an
independent review of your tax situation, please contact us. We would be
happy to help.
Copyright © 2001, all rights reserved
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Tax Tip of the
Ever consider letting Uncle Sam help finance
your business by deferring payment of your employment taxes? Don't even
think about it! In addition to paying interest and penalties that make
credit card interest look seriously good, you and anyone else in your
organization that can be considered a "responsible party" can be hit with a
penalty equal to 100 percent of the tax not paid. Responsible parties can
include the owner, shareholders, bookkeepers, payroll personnel and anybody
else who has check signing authority or can otherwise influence which bills
are paid and when.
By Cary Christian
I want to tell you a brief story that has very
little to do with business and much to do with life.
I spent the first eleven years of my career working 60- to 80-hour weeks
clawing my way up the ladder of a "Big 5" firm. I never had a lot of time to
spend with my family but they seemed to understand.
Then I decided to go out on my own with a couple of my peers and spent the
next eleven years building my own businesses. Again, I never seemed to have
much time to spend with my family and they still seemed to understand. For
the most part.
Christmas of 1999 was quickly approaching and, in many ways, it was much
like every Christmas before it. But there was one large difference: my
father was very ill. For the first time in my life I realized he was not
going to be around forever. This weighed on my mind every day. I thought of
all the holidays past where I had spent virtually no time with my Dad.
Twenty-two years of them. I determined that this one would be different.
Because of Dad's illness, my parents decided not to put up a tree for
Christmas. They just weren't in the mood. So my wife and I decided to put
one up for them. We arrived at my parents house with a six-foot tree, all
the trimmings and an assortment of good foods to nibble on as we enjoyed the
My wife made me, my parents, our daughter and her boyfriend all wear Santa's
hats, Christmas t-shirts and comfortable flannel Christmas pants (kind of
like pajama bottoms) to get us in a more festive mood. I thought that was a
little much, but it worked. It was a wonderful evening. The gleam in my
Father's eyes told me how wonderful it was for him.
I ended up spending more time during the Christmas holidays of 1999 with my
parents that I had spent with them in many years combined. It was good for
me and I found myself wishing I hadn't missed out on being with them more
during my career- and business-building years.
A little over four months later my Father lost his battle with cancer. The
world lost a truly kind and gentle man. I lost my hero, though I'm not sure
I ever adequately let him know that that is what he was to me.
I'll always have regrets over the often misplaced and one-sided emphasis of
my early life. But I'll always have the memories of that Christmas of 1999.
Now I know you can see the moral of this story a mile away. But if your
approach to business and career is like mine has always been, please take a
moment to reconsider. There are hundreds of days available in the year to
nurture your career and build your business. Take time to enjoy the holidays
with your family. Put business aside for a few days. It will still be there
waiting for you when you get back.
Life is short. None of us know when we or a loved one may enjoy our last
Christmas. Be there for it. Immerse yourself in it. Bask in the love of your
family. You'll be stronger for it and so will they.
I wish you all the very best of the holidays!
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